Are you in business and making a profit? If so, be aware that is your obligation to pay corporation tax.
What is a corporation Tax Liability?
If you are a company resident in UK, you are liable to corporation tax on your worldwide taxable profits (income and gains).
Are considered UK resident:
- any limited or unlimited corporate body;
- foreign company with an UK branch;
- company incorporated outside the UK, but their central management and control are exercised in the UK.
There are specific steps you have to work out in order to report the level of corporation tax and pay to the authorities at each accounting period:
- Keep accounting records;
- Prepare a Corporation tax computation;
- File Company Tax Return with HMRC by deadline;
- Pay Corporation Tax to HMRC also by deadline.
How to determine deadline?
An important key point to determine your deadline is your accounting period. This is the period for which corporation tax is charged and in some cases may differ from the period of account(company’s accounting period).
The accounting period can not exceed 12 months. If a company has a period of account exceeding 12 months, then two separate tax computations are required: the first accounting period will be the first 12 months of the period while the second will be the remainder of the period of accounts.
An accounting period my fall within more than one financial year.
In UK the financial year runs from 1st April to the following 31st March. Particular attention is needed when an accounting period straddles 2 financial years with two different corporation tax rates. In this case the total taxable profit will have to be time apportioned.
What are the taxable total profits?
Taxable total profits is calculated as follows:
(Income + Gains from all sources) – (Allowable Losses + Qualifying charitable donations)
Companies are also entitled to other reliefs that include, but are not limited to, capital allowance on plant and machinery purchased for business purposes or research and development tax credits on qualifying expenditures.
What is the main rate?
The Government cut down the main rate:
- For the years starting the 1st April 2017, 2018 and 2019 at 19%;
- For the year starting 1st April 2020 at 17%.
Due date of payment
Companies need to compare the augmented profits to the limit in order to determine whether it is a large company or not.
The augmented profits is the taxable total profits plus exempt ABGH distribution, and the limit of £1,500,000 (FY 2017) applies for a 12-month accounting period with no related 51% group companies.
In the case of shorter accounting period, the limit will be time apportioned. If the company has related 51% group companies at the end of the previous accounting period, the limit will be divided by the number of related 51% group companies, including the company itself.
A large company must pay corporation tax in four estimated instalments by the 14th day of the 7th, 10th, 13th and 16th months after the start of their 12-month accounting period.
You are not treated as large if your tax liability is less than £10,000, or you were not considered such in the previous accounting period and an augmented profits of £10 million or less is reached in the current accounting period (the £10 million are also scaled down by the number of 51% group companies).
Their due date is 9 months and one day after the end of the accounting period.
There are penalties if companies do not file tax return and pay corporation tax in time.
Get in touch with our London office
If you need any assistance on the matter here below, financial and accounting advice or you need any support on preparing and filing your company tax return
You can reach us at:
Telephone: +44 (0)20 7353 9200